On January 1, 2022, Reddy Company purchased 20 percent (40,000 shares) of Raich Corporation for $280,000. The balance sheet of Raich Corporation on the acquisition contained the following information:

Assets subject to depreciation (use straight-line over 8 years) $500,000

Assets not subject to depreciation $150,000

Liabilities $70,000

The assets subject to depreciation have a market value of $540,000. The book values of the other assets and liabilities equal their market values. Both companies have December 31 year-ends.

REQUIRED:

a) Prepare the required journal entries using the fair value through net income method for the following events:

Acquisition (if applicable, also compute the amount of goodwill acquired)

Net income earned by Raich Corporation during 2022 of $28,000.

Additional depreciation expense

The price of Raich Corporation stock declined to $5 per share at the end of 2022.

A cash dividend of $0.25 per share paid on August 3, 2022

b) Prepare the required journal entries using the equity method for the same events listed above.